I recently purchased a 1 TB Time Capsule and was very excited to get home to hook it up. After the initial set up, which didn't go as smoothly as every other Apple product I've set up, I was extremely disappointed with the slow file transfer and constant disconnects I was encountering. I couldn't even stream my iTunes library (which is why I got it).

Here are some tweaks I've done:

Reduce Interference:

Connect the Time Capsule directly to your router with a LAN cable, then log into it via the Airport utility. Click on the manual set up button, then the wireless tab to disable wireless and give her a reboot. When the Time Capsule restarts it should now say "Wired" in the connection status. - Please note, I live in an apartment with 20 or so wireless networks around me, which was causing major interference. After hard wiring the Time Capsule I no longer have drop outs.

Rename your Time Capsule to a single word, mine is named Tera. Don't use weird symbols either, straight up letters and numbers here folks.

Speed her up!

Disable searchlight indexing. Go into system preferences, spotlight, privacy and add your time capsule to the list "Prevent Spolight from Searching these Locations"

Following suite, I removed the Time capsule from Quicksilver's catalog - before I did this Quicksilver would crash or freeze when I tried to use it when my Time Capsule was connected, now I can use both in harmony

After performing all my tweaks, I can now stream iTunes music and videos and quickly update my iPhone and iPods! I haven't had any disconnects either.